Financial Requirements for Licensing

Transcription

1 Financial Requirements for Licensing Effective from

2 1 CONTENTS ABOUT THIS DOCUMENT FINANCIAL REQUIREMENTS FOR LICENSING Objectives Compliance With This Policy Definitions APPLYING THE MINIMUM PRESCRIBED REQUIREMENTS Applicability of this Policy Appropriately Qualified Person for Independent Review Report/Audit Report Allowable Annual Turnover Net Tangible Assets Current Ratio Financial Monitoring Requirements Prescribed Form FINANCIAL INFORMATION REQUIRED ON LICENCE APPLICATION Existing Licensees Applying for New Licence Applying - Allowable Annual Turnover of $100,000 per annum and under Applying - Allowable Annual Turnover of $300,000 per annum and under Applying - Allowable Annual Turnover of $300,001 to $12million per annum (Categories 1 to 3) Applying - Allowable Annual Turnover of more than $12million per annum (Categories 4 to 8) FINANCIAL INFORMATION REQUIRED ON LICENCE RENEWAL Renewing - Allowable Annual Turnover of $100,000 per annum and under Renewing - Allowable Annual Turnover of $300,000 per annum and under Renewing - Allowable Annual Turnover of $300,001 to $12million per annum (Categories 1 to 3) Renewing - Allowable Annual Turnover of more than $12million per annum (Categories 4 to 8) CHANGE OF RENEWAL DATE Change of Renewal Date Categories 1 to Change of Renewal Date Categories 4 to FINANCIAL INFORMATION REQUIRED AT TIMES OTHER THAN AT APPLICATION OR RENEWAL Compliance Audit Adjustment of Allowable Annual Turnover Adjustment of Net Tangible Assets Restructure of Licensee ASSESSMENT OF FINANCIAL INFORMATION BY THE AUTHORITY Minimum NTA and Current Ratio (if applicable) requirements met Where the minimum NTA requirement has not been met Where the minimum Current Ratio (if applicable) requirement is not met SUSPENSION OR CANCELLATION OF LICENCE PROFESSIONAL INDEMNITY INSURANCE REQUIREMENTS Licence classes requiring professional indemnity insurance Terms and Conditions of Insurance Policy Insurance requirements Fire Detection Systems Evidence of Cover Implied warranty by insurance companies and insurance brokers Circumstances when insurance is not required Authority may impose licence conditions... 39

3 2 10. FALSE AND MISLEADING INFORMATION CONFIDENTIALITY TRANSITIONAL ARRANGEMENTS Repeal of financial requirements policies existing prior to 1 July Transitional provisions ATTACHMENTS Attachment 1 Independent Review Report (turnover categories 1-3) Attachment 2 Audit Report (turnover categories 4-8) Attachment 3 Independent Review Report 1 st Year Only (turnover categories 4-8) Attachment 4 Independent Review Report Audit Exemption (turnover categories 4-8) Attachment 5 Declaration Allowable Annual Turnover under $100,000 per annum Attachment 6 Declaration Allowable Annual Turnover under $300,000 per annum Attachment 7 Request to Change Renewal Date Attachment 8 Declaration Professional Indemnity Insurance Attachment 9 Statement of Financial Position - Covenantors Attachment 10 Review Control Sheet TABLES Table A Appropriately Qualified Person Categories Table B Allowable Annual Turnover Structure Table C Possible Assurers Table D Ratio Structure Table E Current Ratio Formula Table F Monitoring Requirements Table G Age of Accounts Applying Categories 1 to 3 Table H Age of Accounts Applying Categories 4 to 8 Table I Age of Accounts Renewing Categories 1 to 3 Table J Age of Accounts Renewing Categories 4 to 8 Table K Change of Renewal Date Timeframes Categories 1 to 3 Table L Change of Renewal Date Timeframes Categories 4 to 8 Table M Licence Classes Requiring Professional Indemnity Insurance Table 1 Financial Requirements for Licensing

4 ABOUT THIS DOCUMENT IMPORTANT 3 This Queensland Building Services Board Policy constitutes the financial requirements for the Queensland Building Services Authority Act 1991 ( Act ). All Applicants for a licence and Licensees undertaking building work in Queensland, other than Supervisors, MUST comply with this policy. The policy consists of the following documents, which must be read in conjunction with the Act and Queensland Building Services Regulation 2003 ( Regulation ): Financial Requirements for Licensing Policy; Deed of Covenant and Assurance; Draft Client Engagement Letter; and BSA Draft Client Questionnaire. The aims of the financial requirements are: To promote more financially viable businesses; and To foster more professional business practices in the building industry. The financial requirements limit annual turnover based upon defined assets or capital levels and test whether debts can be met when they fall due (a liquidity test). Licensees and licence Applicants regardless of whether they are builders, trade contractors or building designers are required to provide a Declaration, Independent Review Report or Audit Report demonstrating that they satisfy the criteria set out in this document. The type of Report required depends on the Applicant or Licensee s financial category, which is determined by their declared Net Tangible Asset position. A full explanation of the financial requirements for licensing is set out in this document and Applicants and Licensees are encouraged to familiarise themselves with its contents. An Appropriately Qualified Person must complete either an Independent Review Report or Audit Report where the Applicant or Licensee is seeking a turnover of more than $300,000. An Appropriately Qualified Person is described in section 2.2 of the policy. WARNING: All forms and declarations (Attachments 1-9) found within this policy are prescribed forms. The prescribed forms MUST be returned with every application or annual renewal without alteration, other than the completion of the spaces provided, unless otherwise advised within the requirements. These forms are also separately presented at the Authority s website at and can be downloaded for appropriate use. If the financial information required by this policy is not provided to the Authority in the prescribed form it will not be accepted. In the case of a Licensee, the licence may be suspended for a period of time and may eventually be cancelled if the requirements are not met. The suspension or cancellation of a licence removes a Licensee s entitlement to carry on business. Contractors who continue to perform building work without a licence are liable to be prosecuted or face disciplinary action and may prejudice their rights to payment for work they have carried out.

5 4 1. FINANCIAL REQUIREMENTS FOR LICENSING 1.1 Objectives To minimise the incidence of financial failure by Requiring Licensees to maintain adequate capital relative to the size of their business; and Requiring Licensees to take an active role in managing their financial affairs and keep appropriate financial records. 1.2 Compliance with this Policy Applicants and Licensees are required to meet the respective requirements set out in the policy and provide the information in the prescribed form. If the Authority has concerns in regards to the accuracy of the information contained in the financial reports provided, it may request more or clarifying information from the Applicant, Licensee of Appropriately Qualified Person Declarations Those Applicants and Licensees who require an Allowable Annual Turnover (AATO) of NOT more than $300,000, and have the minimum level of Net Tangible Assets (NTA), as set out in SC1 and SC2 Categories of Table 1 of $6,000 or $18,000 respectively, may submit one of the following. Either - For all Contractors, excluding Builder classes Declaration Allowable Annual Turnover under $100,000 per annum (Attachment 5); or For all Contractors Declaration Allowable Annual Turnover under $300,000 per annum (Attachment 6). All Applicants or Licensees submitting one of the above Declarations must meet the following requirements in order to comply with this policy: Net Tangible Assets (NTA) wholly in the licensed entity s name required for the allowable annual turnover of the entity. A Declaration made by the entity or its authorised officer Evidence of Professional Indemnity Insurance, where applicable Independent Review Report or Audit Report Applicants and Licensees who require an Allowable Annual Turnover (AATO) of $300,001 or more, must submit one (1) of the following Reports completed in accordance with this policy by an Appropriately Qualified Person, determined by the level of annual turnover required by the entity. Either - An Independent Review Report; or An Audit Report. All Applicants or Licensees submitting one of the above Reports must meet each of the following requirements in order to comply: Net Tangible Assets (NTA) wholly in the licensed entity s name or in combination with amounts assured by way of one or more Deeds of Covenant and Assurance, which are appropriate for the annual turnover of the entity;

6 5 Current Ratio calculated in accordance with the prescribed formula (Refer section 1.3 Definitions): and Internal financial monitoring requirements of at least the specified periods for their Category. 1.3 Definitions In this document: Act - means the Queensland Building Services Authority Act Allowable Annual Turnover means the Allowable Annual Turnover: For Licensees providing a Declaration in accordance with SC1 or SC2 - for the Licence Year. For those Licensee s relying upon an Independent Review Report or Audit Report for the 12 month period upon which the Licensee s next Independent Review Report or Audit Report is based, calculated in accordance with the formula contained in Table 1. Examples: Licensees providing a Declaration (SC1 or SC2): the Allowable Annual Turnover is for the next 12 month renewal period. Licensees providing an Independent Review Report or Audit Report: Licensee has a licence renewal due on 31 October 2007, and provides a Report based on 30 June 2007 year end accounts. The Allowable Annual Turnover issued to the Licensee (based on this Report) will be for the 12 months to 30 June Annual Turnover means the total revenue derived by the Licensee from all sources. Further: For Licensees engaged directly in project or construction management (where project costs are paid directly by the Principal to parties lower in the contractual chain), or who have a building design licence, the annual turnover in respect of those activities is calculated on the total amount received by the Licensee rather than the value of projects. Alternatively, the component of the work processed via the Licensee is deemed turnover. In the case of a partnership, the Annual Turnover is to be the annual turnover of the Licensee and the partnership in combination. In the case of a trust, the Annual Turnover is to be the annual turnover of the Licensee and the trust in combination. Applicant - means an applicant for a contractor s licence issued under the Queensland Building Services Authority Act Assets means assets owned both legally and beneficially by the entity (that is, does not include assets which are held on trust for another person or corporation) and includes but is not limited to the following: (a) real estate; (b) cash; (c) Investments (if collectible); (d) related entity loans and investments (if collectible); (e) shares in publicly listed companies;

7 6 (f) plant and equipment; (g) inventory; (h) debtors (if collectible); (i) motor vehicles; and (j) tools of trade. Assets do not include the following: (a) furniture (personal); (b) shares in companies that are not publicly listed companies; and (c) trade or barter dollars Associated Company - means a company that: 1. is related to the Licensee within the meaning of section 50 of the Corporations Act 2001; or 2. has the same shareholders and directors as the Licensee. ASIC - means Australian Securities and Investment Commission. Authority means the Queensland Building Services Authority. Board means the Queensland Building Services Board. Builder means an individual or company carrying out building work for which a Builder or equivalent licence is required under the Act. Building Designer means an individual or company carrying out building work for which a Building Design Open, Building Design Medium Rise or Building Design Low Rise licence is required under the Act. Compliance Audit means an audit carried out by the Authority on a Licensee pursuant to section 50C of the Act. Current Assets - means assets which in the ordinary course of business would be realised within 12 (twelve) months after the end of the reporting period or held primarily for trading purposes, as defined with Australian Accounting Standards AA36. Related entity loans and/or investments included as current assets must be both collectible and convertible into cash within 12 (twelve) months for inclusion in the calculation. Current Financial Institution Facilities includes the current balance owing of bank and similar financial institution loans, and includes (but not limited to) 1. Bank Overdraft 2. Hire Purchase Agreements 3. Credit Cards Current Liabilities - means liabilities which in the ordinary course of business are expected to be settled within 12 (twelve) months after the end of the reporting period, as defined in the Australian Accounting Standards AA36.

8 7 Current Ratio - means the ratio calculated by using the formula: Debtors means only Debtors that are collectible. Current Assets Current Liabilities Declaration means a Declaration in the prescribed form provided to the Authority in order to meet the requirements of this policy and includes the following: 1. Attachment 5 Declaration Allowable Annual Turnover up to $100,000 per annum 2. Attachment 6 Declaration Allowable Annual Turnover up to $300,000 per annum 3. Declaration in the prescribed form contained within the Authority s Application forms 4. Declaration in the prescribed form contained within the Renewal Notice issued to the Licensee 5. Verbal declaration provided by the Licensee when renewing a licence using Phone pay. Deed of Assurance means the Deed of Covenant and Assurance which is contained in this policy. Defined Amount means the amount determined pursuant to the Financial Requirements for Licensing, as being the amount assured by the Covenantor to the Licensee by Deed of Covenant and Assurance, as stated in the Independent Review Report or Audit Report provided to the Authority from time to time. The amount is the difference between the Net Tangible Assets held by the Licensee and the Net Tangible Assets required for the Licensee s Allowable Annual Turnover. Example: Licensee requires NTA of $36,000 to support $600,000 AATO Licensee has NTA $10,000 in its own right Defined Amount required (as stated in Report) is $26,000 assured by Deed of Covenant and Assurance (equals deficiency between required NTA and actual NTA of Licensee). Directors has the meaning given to it in the Corporations Act 2001 and also includes an Officer (refer definition of an Officer). Disallowed Assets means an entity s assets, or portion thereof, which are unable to be relied upon for the purposes of meeting the requirements in this policy (eg uncollectible debts). Entity means an individual or a company. Intangible Assets include, but are not limited to, Goodwill, Right of Indemnity, Intellectual Property, Formation Expenses, Value of Trademark, Patent and Borrowing Expenses. Internal Management Accounts means Statement of Financial Performance, Statement of Financial Position (formerly Trading, Profit & Loss and Balance Sheets) and Statement of Cash Flows.

9 8 Inventory - includes raw materials, work in progress (including contract work in progress) and finished stock. Investments means only investments that are collectible, and not shares in companies that are not publicly listed. Liabilities includes any debts or obligations which must be paid or settled within a certain period of time or are payable on demand. Licence Year means the period of 12 months from the date the licence is initially granted or is renewed. However, where a Licensee is altering their renewal date in accordance with this policy, licence year may include a period of less or greater than 12 months. Refer section 5. Licensee means the holder of a contractor s licence issued under the Queensland Building Services Authority Act Net Real Unencumbered Assets an entity s Net Real Unencumbered Assets are to be calculated using the same process in determining an Applicant s or Licensee s NTA. Note: All assets and liabilities of the Covenantor/s (from all sources) must be taken into account in determining Net Real Unencumbered Assets. Where assets are jointly owned, only the Covenantor s share of equity within an asset can be included. Net real unencumbered assets do not include: 1. assets subject to securities or encumbrances, other than to the extent to which the real value of those assets can be shown to exceed the liability under all encumbrances provided (including Personal Guarantees, Indemnities and the like); 2. assets being assured by a Deed of Covenant and Assurance to another Applicant or Licensee; 3. related entity loans and/or investments owing to the Covenantor by an Applicant or Licensee. In the case of beneficiaries of trusts, net real unencumbered assets do not include any assets that are held on trust on behalf of the beneficiary unless there is a presently existing right under the trust for the beneficiary to call for transfer of the asset into the beneficiary s name. Net Tangible Assets Net Tangible Assets (NTA) is calculated using the following formula: NTA = (Entity s Assets) - (Entity s Liabilities) - (Entity s Intangible Assets) Officer has the meaning given to it in the Associations Incorporation Act Related Entity Loans and Investments means only Related Entity Loans and Investments that are collectible from Related Parties. Related Parties means: (a) a director or shareholder of the entity; (b) a director of a body corporate that is a parent entity of the company; (c) a spouse or de facto spouse of such a director or person; (d) a parent, son, daughter, brother, sister, half brother or half sister of such a director or person; (e) spouse or de facto spouse of an entity over which;

10 9 (f) (g) (h) i) a person of a kind referred to in paragraph (a), (b), (c) or (d) has control; or ii) 2 or more such persons together have control; a parent entity or sibling entity of the entity; if a trust, the trustee, the trust beneficiaries and their spouse, de facto spouse, parent, son, daughter, brother, sister, half brother or half sister of that person; or if an individual contractor, their spouse, de facto spouse, parent, son, daughter brother, sister, half brother or half sister of that person or any entities in which they are directors or shareholders. Revenue Means the total income received, excluding: (a) Salary and/or wages received as an employee; and (b) GST collected as an agent, from which the Licensee obtains no benefit. Review Control Sheet means the review control sheet contained this policy (Attachment 10). Trade Contractor means an individual or company carrying out building work for which a trade licence is required under the Act. 2. APPLYING THE MINIMUM PRESCRIBED REQUIREMENTS 2.1 Applicability of this Policy For Applicants and Licensees providing Declarations this Policy is effective for any Declaration completed on or after 1 July For Applicants and Licensees who provide an Independent Review Report or Audit Report this Policy is effective for all Reports with a review year end date on or after 1 July Appropriately Qualified Person for Independent Review Report/Audit Report Restrictions apply to those Appropriately Qualified Persons permitted to complete Independent Review Reports and Audit Reports regarding the financial position of an Applicant or Licensee. An Appropriately Qualified Person is a person who is independent of the entity (ie not the Applicant or Licensee, and is not a director, secretary or employee of the Applicant or Licensee), and has the required qualifications for the AATO Category set out below:

11 10 Table A Appropriately Qualified Person Categories QUALIFICATION Registered company auditor holding professional indemnity insurance of at least $250,000 Holder of a current public practising certificate from the Australian Society of Certified Practising Accountants (CPA) Holder of a current public practising certificate from the Institute of Chartered Accountants in Australia (ICAA) Holder of a current public practising certificate from the National Institute of Accountants (NIA) Holder of a current public practising certificate from the Association of Taxation and Management Accountants (ATMA) Holder of a current public practising certificate from the National Tax & Accountants Association (NTAA) Holder of at least Membership status of one of the above professional associations Registered Tax Agent Another Responsible Person in extraordinary circumstances ELIGIBLE TURNOVER CATEGORIES Categories 1 to 8 Categories 1 to 3 inclusive Categories 1 to 3 inclusive Categories 1 to 3 inclusive Categories 1 to 3 inclusive Categories 1 to 3 inclusive Category 1 Only Category 1 Only At the discretion of, and by prior approval of, the Authority All work must be performed in accordance with all applicable Australian Accounting and Auditing Standards, and other mandatory reporting requirements. The Appropriately Qualified Person completing the Report may be required by the Authority to demonstrate suitable audit experience Another Responsible Person Where the Independent Review Report is provided by another responsible person, details of the extraordinary circumstances and the reporter s professional qualifications, audit experience (if any), business relationship and length of time of association with the Applicant or Licensee must be provided. Approval as another responsible person will only be given on a case by case basis Notice to Appropriately Qualified Persons Completing Independent Review Reports This section will only apply to Licensees who are NOT required to be audited under Corporations Act 2001 as they are a non-reporting entity, and who are submitting Independent Review Reports (Attachment 1, 3 or 4) in order to comply with this policy. The processes and utilisation of the Review Control Sheet (Attachment 10) is a minimum requirement only. Licensees may opt to have their financial situation reviewed on a more onerous basis.

12 11 However, the Appropriately Qualified Person conducting the Review must still apply all relevant Australian Accounting Standards and policies where appropriate for the Licensee. Where the mandatory standards and policies have not been applied in the preparation and presentation of the financial information and Report, the Appropriately Qualified Person must clearly state such details in the Report. All Independent Review Reports are to be prepared based on financial information of the business by an Appropriately Qualified Person. Independent Review Reports are required to be carried out by the Appropriately Qualified Person at the time of an initial licence application, on an annual renewal basis and from time to time as the need arises, in accordance with section 6 of this policy. A review of the Applicant or Licensee s financial position is required to be conducted in order to provide the Independent Review Report. An independent review is not an audit. To assist the Appropriately Qualified Person in their review, the following sample documents are provided and form part of this policy: a draft client engagement letter a draft client questionnaire, and a draft review control sheet (Attachment 10). (copies of these documents can be found on BSA s website These documents provide guidance only to the Appropriately Qualified Person for reviewing Applicants or Licensees and have been drafted with reference to Auditing Standard AUS 902 Review of Financial Reports. An annotated Independent Review Report and Deed of Covenant and Assurance is also available at to assist the Appropriately Qualified Person with the complete process and documents Warning to Appropriately Qualified Persons Pursuant to section 53B of the Act it is an offence to provide the Authority with information that is knowingly false or misleading in circumstances where the person providing the financial report has not taken reasonable steps to ensure that the report was not false and misleading. The Authority may choose to prosecute the person giving the financial report and the penalties may consist of either a fine, imprisonment or in certain circumstances a combination of both Reporting Requirements by Appropriately Qualified Person Review Reporting means the Appropriately Qualified Person providing the Independent Review Report must make appropriate inquiries of the Applicant or Licensee, and seek evidence that is appropriate in the circumstances, in their professional opinion, to justify the information stated in the Independent Review Report or Audit Report The Appropriately Qualified Person providing the Independent Review Report must carry out the tests and checks referred to in the Review Control Sheet as a minimum requirement. The Audit Report is an opinion, based on Australian Auditing Standards and other mandatory financial reporting requirements, which reports upon a special purpose financial report using information contained in audited financial statements of the Applicant or Licensee. Independent Review Reports or Audit Reports will be deemed incomplete for assessment where they are qualified by disclaimer clauses (other than those already contained in the prescribed forms) by the Appropriately Qualified Person giving the report.

13 Implied Warranty by Appropriately Qualified Person Where an Applicant or Licensee is relying upon one or more Deeds of Covenant and Assurance to meet the financial requirements, the Appropriately Qualified Person signing the Report is warranting to the Authority they have conducted all reasonable checks into each Covenantor s entire financial position to ensure they have Net Real Unencumbered Assets to cover the amount secured by the Deed. Where amounts are considered not collectible or have not been sufficiently evidenced with regard to their value or ownership, the Appropriately Qualified Person signing the Report must reduce the Covenantor s total Net Real Unencumbered Asset position by that amount (eg Related Entity Loans). The Appropriately Qualified Person accepts that the Authority relies upon this warranty in order to grant, renew or maintain the entity s licence. 2.3 Allowable Annual Turnover The Allowable Annual Turnover (AATO) is calculated on the Net Tangible Asset (NTA) position of the Applicant or Licensee as stated in the Declaration, Independent Review Report or Audit Report provided to the Authority from time to time. The AATO of an entity providing an Independent Review Report or Audit Report will be calculated upon the entity s personal NTA stated in the Report, in combination with amounts being assured by way of one or more Deeds of Covenant and Assurance. The AATO is calculated by applying the stated formula to the NTA of the entity, as set out in Table 1. The AATO will be restricted to the maximum AATO permitted for the type of Declaration or Report provided. The Authority will advise the Applicant or Licensee of its AATO for the forthcoming Licence Year upon granting or renewing the licence. In instances where Declarations or Reports are provided at any other time, the Authority will advise the Licensee of its new AATO which will apply for the current Licence Year. The Allowable Annual Turnover issued will apply to the Licensee, in combination with the trust/s or partnership/s through which it is trading. Table B Allowable Annual Turnover Structure APPLICANT OR LICENSEE S STRUCTURE Individual - sole trader Company - trading as stand alone company Company - trading as part of a group of companies under ASIC Class Order 98/1418 or similar Individual or Company trading in partnership Individual or Company - acting as trustee ANNUAL TURNOVER APPLIED TO: Individual only Company only Consolidated group only Individual or Company in combination with partnership/s Individual or Company in combination with trust/s

14 13 Licensees may exceed their Allowable Annual Turnover level by up to 10% without being required to obtain prior approval from the Authority. Note: All licences are subject to a condition that Licensees are not to exceed the Allowable Annual Turnover by more than 10% without first providing a new Declaration or Report which substantiates the Licensee has sufficient NTA to support a higher level of turnover (refer section 5). 2.4 Net Tangible Assets Applicants and Licensees must have sufficient Net Tangible Assets (NTA) required for the level of Allowable Annual Turnover, as stated in Table 1. This may be evidenced either through a Declaration completed by the Applicant or Licensee, or certified in the Independent Review Report or Audit Report completed by the Appropriately Qualified Person. In determining the entity s NTA position, the person completing the Declaration or Report must consider the entity s entire financial position, including related entities and those entities providing assurance of assets in order for the entity to meet the financial requirements. Where an entity does not have sufficient NTA in its own right for the level of turnover being sought or conducted (which ever is the highest) they may provide an Independent Review Report or Audit Report and rely upon a Deed of Covenant and Assurance from a related entity as stated in this policy. Note: All licences are subject to a condition that the Licensee s NTA position is not to decrease by more than 10% for more than one (1) month unless the Licensee provides a new Declaration or Report within 30 days of the expiration of the one (1) month period. The Declaration or Report must substantiate the Licensee s adjusted NTA position. This includes a decrease in the Net Real Unencumbered Assets which have been assured to the Licensee by Deed of Covenant and Assurance Negative Net Tangible Assets Applicants applying for a licence must have an NTA position in their own right of not less than $0. Those Applicants which have a negative (deficit) NTA position will not meet the Financial Requirements for Licensing and cannot rely upon a Deed of Covenant and Assurance to cover the deficiency. Existing Licensees, who prior to 1 July 2006, had a negative (deficit) NTA position, will be required to increase their NTA position to be not less than $0 by 1 July Where a Licensee provides financial information for a year end 1 July 2007 or later, the Report must evidence the Licensee does not have a negative NTA. This provision does not apply to entities where NTA is being supported by a Deed provided by a local, state or federal government instrumentality or agency Net Tangible Asset to Allowable Annual Turnover Ratio Effective 1 July 2006, NTA levels for some financial Categories will vary each year. These changes will have an impact on a Licensee s AATO. Applicant s and Licensee s AATO is to be calculated in accordance with the levels stated for the respective year in each of the Categories in accordance with Table 1.

15 Asset Valuations Individual Applicants and Licensees are permitted to value assets that are to be relied upon in support of Net Tangible Assets, provided those values can be substantiated. In the case of a company applicant or Licensee, the Directors are permitted to value assets that are to be relied upon in support of NTA, provided those values can be substantiated. Where any lack of substance as to the valuation is perceived by either the Appropriately Qualified Person preparing the Independent Review Report or Audit Report or the Authority, such valuations must be substantiated by a valuation by an accredited, registered or recognised valuer. In certain limited circumstances, deferred tax assets (future income tax benefits) may be included as an asset, provided the recoupment of the tax losses which gave rise to the future income tax benefits are considered as being virtually certain. Only the estimated net realisable amount of the entity s assets should be brought to account. All liabilities, intangible assets and disallowed assets of the entity must be deducted in calculating NTA in accordance with this policy Related Entity Loans and Investments Related Entity Loans and Investments recorded as an asset in the entity s accounts are not to be included or relied upon in determining the entity s NTA, unless the Appropriately Qualified Person preparing the Independent Review Report or Audit Report has independently verified that the related entity loan or investment is collectible. It is not sufficient for the Appropriately Qualified Person to accept the Directors advice without performing reasonable checks or tests. The Appropriately Qualified Person preparing the Report is required to notify on the Report that they have independently verified the collectibility of the Related Entity Loan or Investment Assurance Of Assets By Deed Of Covenant And Assurance Applicants and Licensees providing a Declaration must have sufficient assets in their own right, and cannot rely on a Deed of Covenant and Assurance in order to meet the NTA requirements for SC1 or SC2. Entities relying upon a Deed of Covenant and Assurance must provide an Independent Review Report or Audit Report, and must meet Category 1 requirements in accordance with Table 1, at a minimum. Where the Applicant or Licensee does not have sufficient NTA in its own right for the level of AATO required it may, dependent on the entity s structure, rely upon a Deed of Covenant and Assurance based on the Net Real Unencumbered Assets of one or more of the following related entities, in order to meet the NTA requirement. The Covenantor must have and maintain sufficient Net Real Unencumbered Assets in their own right to meet the value of the Defined Amount stated in the Independent Review Report or Audit Report. The Net Real Unencumbered Assets of the Covenantor cannot include any Related Entity Loans or Investments from the Licensee. Refer section 1.3 Definition Net Real Unencumbered Assets.

16 15 Table C Possible Assurers APPLICANT OR LICENSEE S STRUCTURE POSSIBLE ASSURERS Individual - sole trader Not Available Company trading as stand alone company Directors of the Licensee Associated company of the Licensee Company Licensee trading as part of a group of companies Individual or Company trading in Partnership Individual or Company - acting as trustee Directors of the Licensee Associated company of the Licensee Other companies in the group Other partners within the Partnership Directors of the Licensee (if a company Licensee) Associated company of the Licensee (if a company Licensee) Beneficiaries of the trust administered by Licensee as Trustee Directors of the Licensee (if a company Licensee) Associated company of the Licensee (if a company Licensee) The Deed of Covenant and Assurance must be in the prescribed format as set out in this policy. The original of the Deed will be required to be submitted to the Authority together with the Independent Review Report or Audit Report and will remain with the Authority while the entity continues to rely upon the Deed to meet the requirements. The Appropriately Qualified Person completing an Independent Review Report or Audit Report which relies on a Deed of Covenant and Assurance will be required to: state in the appropriate space on the Report the full name and the relationship to the Licensee of each Covenantor, state within the Report the defined amount that is secured by the Deed, or if more than one - each Deed; and provide a Statement of Financial Position (Attachment 9) and any other appropriate documentation detailing each Covenantor s financial position at the time the Report was signed, and be based on accounts no earlier than the year end date on which the Report has been based. The Statement of Financial Position must be verified by the Appropriately Qualified Person completing the Report signifying all reasonable checks have been made with regard to each Covenantors financial position, to ensure the existence, collectibility and unencumbered value of assets being assured to the entity. Example: If the Licensee is relying on 30 June 2005 accounts for the purpose of the Report, the Covenantor s Statement of Financial Position must be based on 30 June 2005 or later accounts.

17 16 Where a Covenantor also holds a licence, the amount of Net Real Unencumbered Assets available for assurance must be reduced by the amount of NTA required by the Covenantor to maintain their personal licence Updating Deeds of Covenant and Assurance Where a Licensee relies upon one or more Deeds of Covenant and Assurance and restructures its financial affairs, the Authority will return the Deed/s it holds once it has received an appropriately updated Independent Review Report or Audit Report and any Deeds of Assurance which are required to replace the Deed/s being returned. The Appropriately Qualified Person signing the new Report will be required to consider whether the Licensee is required to provide further Deeds of Assurance Unconditional Undertakings (including Bank Guarantees) When unconditional undertakings (including bank guarantees) are issued to fund retentions or as additional security on a contract, a contingent liability arises. Contingent liabilities are generally not included within a balance sheet but are to be included in the notes to the accounts. Unconditional undertakings can usually be called up without authority from the person providing the guarantee. A contingent liability converts to a current liability when an unconditional undertaking is called up by the beneficiary. Where a current liability arises, the effect of the unconditional undertaking is shown in arriving at the NTA calculation. Where it is apparent that the Licensee may be in a position where any such unconditional undertakings may be exposed to being called up, the NTA of the Licensee may be reduced by the amount, or portion, of such contingent liabilities. The Authority must be provided with an updated Report to reflect the new NTA position, where the current liability reduces NTA by more than 10% for more than 1 month (refer section 2.4) 2.5 Current Ratio Applicants and Licensees who provide a Declaration (SC1 or SC2) in order to meet the requirements of this policy are not required to demonstrate they meet the Current Ratio requirements. All other Applicants and Licensees must demonstrate they meet the minimum Current Ratio levels as set in Table E, according to the entity s structure refer Table D. Following approval of a licence application or renewal, all Licensees must continue to be able to meet the minimum Current Ratio requirements at all times throughout the Licence Year. The Appropriately Qualified Person must verify in the Independent Review Report or Audit Report the entity has met the Current Ratio on the last date of the year on which the Report has been based Determining Appropriate Current Assets And Current Liabilities Depending on the structure of the Applicant or Licensee, the current ratio must be met from the current assets and current liabilities, as follows:

18 17 Table D Ratio Structure APPLICANT OR LICENSEE S STRUCTURE Individual - sole trader Company - trading as stand alone company Company - trading as part of a group of companies under ASIC Class Order 98/1418 or similar Individual or Company trading in partnership Individual or Company - acting as trustee CURRENT ASSETS AND LIABILITIES OF: Individual only Company only Consolidated group only Individual or Company in combination with partnership/s Individual or Company in combination with trust/s A ratio less than the stated minimum requirement must not be rounded up. For example a current ratio of :1 is less than 1:1 and does not meet the requirement where the minimum stated requirement is 1:1. Applicants and Licensees cannot include any amounts assured to them by way of a Deed of Covenant and Assurance in calculating the ratio Ratio Formula Applicants and Licensees must meet the minimum Current Ratio requirement calculated in accordance with the following formula: Table E Ratio Formula CURRENT RATIO FORMULA MINIMUM REQUIREMENT Current Assets Current Liabilities 1 : Financial Monitoring Requirements To comply with this requirement Applicants and Licensees must maintain internal management accounts (not required to be the subject of an Independent Review Report or Audit Report) which have been prepared at the following intervals:

19 18 Table F Monitoring Requirements CATEGORY Declaration up to $100,000 Declaration up to $300,000 Category 1 Category 2 Categories 3 to 8 MINIMUM INTERVAL Not Applicable Not Applicable Yearly Half Yearly Quarterly The internal management accounts are not required to be provided to the Authority unless requested, but must be provided to the Authority upon request. 2.7 Prescribed Form All forms, including the Declarations, Independent Review Reports and Audit Report, are prescribed forms and are unable to be amended from the format stated within this policy, other than by completion of the relevant spaces. Declarations must be personally signed by the Applicant or Licensee. Where the Applicant or Licensee is a company, only Directors and other Authorised Officers of the company may sign the Declaration. Independent Review Reports and Audit Reports may be completed by an Appropriately Qualified Person only as set out in section 2.2. In completing the Reports, the Appropriately Qualified Person must comply with the: Australian Auditing Standards and other mandatory professional reporting requirements when preparing Audit Reports; and Australian Auditing Standards applicable to review engagements when preparing Independent Review Reports. With respect to a company that has been registered with the Australian Securities and Investments Commission (ASIC) for less than 12 months, the Appropriately Qualified Person completing the Report may alter the Report to reflect the period being reported on is less than 12 months, with the review period commencing from the date of incorporation. 3. FINANCIAL INFORMATION REQUIRED ON LICENCE APPLICATION It is a requirement imposed by sections 31(1)(c) and 31(2)(c) of the Act that all Applicants for a licence must satisfy the financial requirements stated in the Board s policy. At the time of application, the Applicant must demonstrate it meets the requirements for the level of Allowable Annual Turnover being sought for the first Licence Year. The requirements which may be applied to the financial information are as follows, and calculated in accordance with Table 1: Net Tangible Assets held by the Applicant; Current Ratio calculated in accordance with the specified formula, meeting the minimum requirement for that formula;

20 19 Financial Monitoring Requirements of internal management accounts; Provision of the appropriate Declaration, Independent Review Report or Audit Report completed in accordance with this policy; and Evidence of the appropriate current Professional Indemnity Insurance being held where the Applicant applies for the one or more of the following licence classes. Refer to Section 9. Building Design Open Building Design Medium Rise Building Design Low Rise Hydraulic Services Design Site Classifier Completed Residential Building Inspection Termite Management Chemical Fire Detection Systems Fire Equipment Passive (Wall and Ceiling) Fire Equipment Passive (Penetration and Joint Ceiling) Fire Equipment Passive (Fire Doors and Fire Shutters) Fire Fighting Appliances Fire Hose Reels and Fire Hydrants Fixed Fire Pump Sets Fire Sprinkler Systems (Domestic and Residential) Fire Sprinkler Systems (Other than Domestic and Residential) Fire Suppression Systems Special Hazards 3.1 Existing Licensees Applying for New Licence Where an Applicant holds a current licence and the Applicant is not seeking to increase its Allowable Annual Turnover it may rely on the financial information provided as part of its renewal process to meet the Financial Requirements for Licensing. Existing Licensees applying for a Builder class of licence for the first time will need to provide financial information where it is reasonable to expect their current turnover will increase. 3.2 Applying - Allowable Annual Turnover of $100,000 per annum and under This option is available to all Contractors, excluding Builder classes. Applicants who require an Allowable Annual Turnover of not more than $100,000 in the first licence year may submit a Declaration in accordance with this policy when making application for a licence. An Applicant must, at the time of application, declare to the Authority they have the required level of Net Tangible Assets (NTA) as stated in Table 1, and will not have a turnover of more than $100,000 per annum. The declaration is to be made on either the Declaration Allowable Annual Turnover under $100,000 per annum (Attachment 5), or by completing the appropriate Declaration within the Authority s Individual, Company or Mutual Recognition Application Forms. The Applicant must have at least $6,000 NTA in its own right. An Applicant cannot rely on assets of another entity, or those assets held on trust, to meet this requirement. If the Applicant does not have sufficient assets in its own right and must rely upon a Deed of Covenant and Assurance to meet the NTA requirement, then it must comply with Section 3.4. Provide evidence of current Professional Indemnity Insurance (where appropriate for the class of licence) which complies with Section 9.

21 Applying - Allowable Annual Turnover of $300,000 per annum and under Applicants who require an Allowable Annual Turnover of not more than $300,000 in the first licence year may submit a Declaration in accordance with this policy when making application for a licence. An Applicant must, at the time of application, declare to the Authority they have the required level of Net Tangible Assets (NTA) as stated in Table 1, and will not have a turnover of more than $300,000 per annum. The declaration is to be made on either the Declaration Allowable Annual Turnover under $300,000 per annum (Attachment 6), or by completing the appropriate Declaration within the Authority s Individual, Company or Mutual Recognition Application Form. The Applicant must have at least $18,000 NTA in its own right. An Applicant cannot rely on assets of another entity, or those assets held on trust, to meet this requirement. If the Applicant does not have sufficient assets in its own right and must rely upon a Deed of Covenant and Assurance to meet the NTA requirement, then it must comply with Section 3.4. Provide evidence of current Professional Indemnity Insurance (where appropriate for the class of licence) which complies with Section Applying - Allowable Annual Turnover of $300,001 to $12million per annum (Categories 1 to 3) Applicants who require an Allowable Annual Turnover of between $300,001 and $12million per annum in the first licence year will need to have their financial information verified by an independent Appropriately Qualified Person (Section 2.2) and provide the relevant financial information in accordance with this policy. In providing the financial information, Applicants must have: adequate Net Tangible Assets for the level of Allowable Annual Turnover required for the first licence year; a minimum Current Ratio in accordance with the specified formula; Internal Management Accounts which are able to be produced at required intervals, and be provided to the Authority upon request; an Independent Review Report (Attachment 1) signed by an Appropriately Qualified Person; and evidence of current Professional Indemnity Insurance (where appropriate for the class of licence) which complies with Section Age Of Information Being Relied Upon The Applicant s Allowable Annual Turnover (AATO) being sought for the first Licence Year will determine the financial Category the Applicant is seeking, and therefore the age of the information to be relied upon. The Applicant is to provide the appropriate information to the Appropriately Qualified Person preparing the Report, in accordance with the following table:

22 21 Table G Age of Accounts Applying Categories 1 to 3 ANNUAL FINANCIAL REPORTING AATO Category Age of Accounts to be no older than 1 12 months 2 7 months 3 4 months The reference in the Table to no older than refers to the time difference between the year end date the Report has been based on, and the date the Appropriately Qualified Person signs the Independent Review Report, and not any other date. The Report must have been signed no earlier than 30 days prior to the date the application is received by the Authority. Reports dated any earlier than 30 days prior to the date of receipt will not be accepted by the Authority. Example An Applicant seeks an Allowable Annual Turnover within Category 2. Therefore, the age of the information must be no older than 7 months at the time the Report is signed. If the Applicant is relying on 30 June accounts, the Report must be signed by 31 January of the following year, and received by the Authority no later than 30 days after 31 January. The Report must be based on full 12 months accounts, irrespective of whether the Applicant has previously traded. In cases where the Applicant is a company which has been incorporated for a period of less than 12 months, the Report may be based upon accounts from the date of incorporation. 3.5 Applying - Allowable Annual Turnover of more than $12million per annum (Categories 4 to 8) Applicants who require an Allowable Annual Turnover of more than $12million per annum in the first licence year will need to have their financial information verified by an independent Appropriately Qualified Person (Section 2.6) and provide the relevant financial information in accordance with this policy. In providing the financial information, Applicants must have: adequate Net Tangible Assets for the level of Allowable Annual Turnover required for the first licence year; a minimum Current Ratio in accordance with the specified formula; Internal Management Accounts which are able to be produced at required intervals, and be provided to the Authority upon request; an Independent Review Report or Audit Report signed by an Appropriately Qualified Person; signed Financial Statements on which the Report has been based; and evidence of current Professional Indemnity Insurance (where appropriate for the class of licence) which complies with Section 9.